The Socialist 19 March 2005 |
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'Third World Debt': Who gains from Brown's plans?
GORDON BROWN urged activists at Labour's Scottish conference to join the
July demonstration demanding global justice at the Edinburgh G8 summit. Has
the "Iron Chancellor", author of "prudence" and architect of Private Finance
Initiatives and 100,000 civil service job cuts, been so affected by the
tsunami disaster and poverty in Africa, that he's turned into a raving
No! Closer examination of his, and other Western leaders', proposals for
'Third World' debt relief reveal that hard cash calculations have not been
overcome by altruism and philanthropy.
However, the tsunami, Africa and the 'Make Poverty History' campaign have
thrust the debt issue back up the political agenda, and Brown and Blair want
to be seen to be doing something about it this year when the UK holds the
presidency of both the European Union and G8.
British and US imperialism want to improve their world public image after
the debacle of Iraq, especially in the Muslim and poorest countries. They
rightly fear social revolt growing in the developing countries, already
presaged by uprisings and 'radical' governments in Latin America. One serious
debt default could lead to a world financial crash and the bankruptcy of major
private financial institutions, causing economic crises in the advanced
So Brown's debt relief plans, passed off as helping tsunami victims and
Africa's poor, are more intended to protect private western investors.
Tsunami-affected countries like Indonesia, Thailand and India, owe more
than half their debt to private banks and bondholders. The World Bank
estimates that emerging market debt in 2003 stood at $2,433 billion, of which
$1,600 billion, two-thirds, is owed to private western investors.
Brown got the G8 to offer the Asian countries a three-year postponement of
their public debts. The moratorium offered by the Paris Club (the 19 biggest
creditor governments) is also of public debt (ie debts to western
The effect of this will be that in three years time, Indonesia for example
will owe an extra $12 billion on top of its existing $132 billion total debt.
But in the meantime, this public debt postponement will allow the
governments of the tsunami-affected countries to carry on servicing their
private creditors without interruption. This means that even after the
tsunami, these countries will still be paying more out in debt repayments than
they are getting in aid!
And a growing proportion of loans and credit to the Third World is coming
from private lenders and investors. Over the last 15 years the private sector
has accounted for more than 90% of net capital inflows to the biggest
borrowing countries. Since the East Asian financial crisis in 1998 that figure
has become 100% because borrowing countries have been making net repayments to
the World Bank, IMF and Paris Club.
Bailing out banks
THESE NET repayments are the price Asian countries are paying for the
bail-outs of their economies from the financial crises of 1997/8. But these
bail-outs were primarily intended to protect the interests of private
As much was admitted at the time by Gavyn Davies (then chief economist at
top city firm Goldman Sachs, later to be Director General at the BBC) when he
said regarding South Korea: "it is clear in retrospect that the allocation of
IMF funds to Korea last year had the effect... of bailing out the western
"International money sent to Korea was immediately used to pay down foreign
bank debt which would otherwise have been subject to a very high risk of
default. .... Typically.... (western) taxpayers have no idea that their money
is being spent in this way ... the most direct beneficiaries are the
shareholders of western banks ... this transfer from general taxpayer to the
bank shareholder almost certainly implies gains by the rich at the expense of
the poor ...which is perhaps why governments are generally at pains to
disguise these effects of IMF programmes".
Essentially the same thing is being repeated now in response to the tsunami
and for Africa.
It's true that Brown has pledged to forgive debts owed to Britain (public
debts) by Mozambique and a few other poorest African countries, and will pay
off 10% of their debts owed to the IMF and World Bank. But these were
unpayable debts anyway, so in effect bad debts are being written off by
western taxpayers' money.
Again though, it means that even the poorest African countries will still
be paying up much larger amounts to private lenders. Sub-Sahara African
countries owe $68 billion to international institutions, but $220 billion to
No, the world capitalist leaders will not countenance any major debt
cancellation, even of tsunami-affected countries, because they fear that would
lead to mass social movements in other indebted countries, like Latin America,
demanding that their governments refuse to pay as well. One major default
could lead to the collapse of the world financial system.
So when Gordon Brown said in January that "the fortunes of the richest
persons in the richest country (are tied) to the fate of the poorest persons
in the poorest country of the world even when they are strangers and have
never met" we know whose side he was speaking for.